How to Say No to an Employee Pay Rise Request

As a business owner, or senior executive, turning down an employee request for a pay rise is a difficult thing to do without risking demoralising that person or even losing them from the company completely. For many SME’s

there is simply not the spare cash to grant pay rise requests, even for deserving employees

the employee is already well remunerated for the work they do compared to the market

the employee does not perform at the level the requested pay level requires

However, there are ways to decline these requests that can leave both you and the employee feeling satisfied with the process and its outcome. Follow our quick guide below to navigate your way through the conversation and the alternatives that you can offer in lieu of straight cash increases.

Be Credible:

Do not respond to the request straight away. Agree to consider it and set a time to meet again to discuss your thoughts. Do not let days or weeks drift by without a response hoping it will go away, get out your calendar and lock in a time now.

Planning for tight cash flow periods:

You need to know whether you are actually paying market rates currently, a significantly underpaid employee will only stay for a certain period of time when they believe their investment will be returned eventually. A ‘no’ now to an employee who knows they are able to get more elsewhere, assuming you do want to keep them, needs to be followed up with a clear indication of how, when or what alternatives can be considered in lieu of cash rewards (read on).

Be Consistent:

This is important on 2 levels. A: If you have been providing the employee with positive feedback over a period of time about their performance and quality of work, but didn’t actually mean it and were only trying to make them feel valued, then you have brought this on yourself. Here, you need to come clean about the link between the value of the job itself and the value of the level of performance the employee has delivered in the role. If it is not at the level to deserve a pay rise then clarify the performance levels you expect and be as detailed as you can with specific examples and set them an improvement plan. B: If you have just granted a pay rise to someone else who has been giving similar performance at a similar level then you have to be consistent with your behavior, so think carefully before you give rewards to any staff about the perception of consistency amongst the team.

Be Constructive:

If you believe that the employee is simply not performing at the level required, a ‘no’ needs to be followed by a plan of how the employee can reach the goal in the future. Many small businesses do not do performance reviews, and there is some controversy surrounding the value of annual performance review versus regular and honest feedback from supervisors and managers. Employees cannot improve in a feedback vacuum, sit down with the employee and acknowledge their current level of performance and what you feel are the gaps that need to be filled for them to reach the required level justify additional rewards.

Offer Alternatives:

Cash is always the first thing that employees will ask for, but you can say ‘no’ and offer alternatives that may be more cost effective for the business. These include things like airline lounge memberships, professional association membership dues, training and education (fees and time off work for completion or study), flexibility in work hours (again be consistent), greater exposure to the executive team (presentations or reports) or high level clients (join the teams on those plum accounts) or one-off bonus’s linked to clearly defined outcomes and achievements.

Be Confidential:

Finally, remember that throughout this whole process the employee needs to be taken seriously, treated with respect and your conversations must remain confidential.

Of course, you can also be pro-active – if you are expecting an employee to come forward with the request and sense (or hear through the grapevine) they are becoming anxious about speaking up, then start the conversation yourself.

If you have any doubts about pay rates or performance managing your team, contact the SV Strategic Solutions team for a confidential discussion about ways to improve your employees’ perception of you as a fair boss and a company that values its employees.